Plan for retirement with this simple checklist

As life expectancy increases and the cost of living rises, the importance of early and strategic retirement planning cannot be overstated.

However, almost half (46%) of Hong Kong investors are not confident of having sufficient funds for retirement, according to Fidelity’s APAC Investor Study 2024. 

That said, it’s never too late to start. It pays to plan and save for retirement early, to allow your wealth to compound faster, so you have less to do later on.

Why it pays to start retirement planning early

According to a recent survey, that Hong Kongers need around US$1.1 million (HK$8.6 million) for a comfortable retirement. Leveraging compound interest means that even small, regular contributions can grow significantly over time. By beginning early, you can:

• Take advantage of a longer investment horizon
• Build a more substantial retirement fund
• Have the flexibility to adjust your strategy as needed

With rising inflation, it's essential to invest wisely to outpace rising costs. The chart below shows that returns compound exponentially faster when you start early – for instance, having a 20-year headstart for a US$10,000 investment can potentially generate double the returns at the 40-year mark.

How to draw up a robust retirement plan

A robust retirement plan should be holistic, ensuring that your bases are covered from now through retirement.

This means balancing your retirement goals with other goals, including those that are short- to medium-term, such as a mortgage, an education fund for your children, or an allowance for your aged parents. Naturally, you would assess how much you need for each of these goals. Don’t forget to factor in healthcare and insurance costs, potential lifestyle changes at retirement, and the impact of inflation over time.

Next, you need to figure out how to reach these goals. There are usually three ways to get there:

1. Save: Maximise how much you can save by being disciplined about setting aside money from your income.
2. Increase your earning power: Whether it’s taking a side hustle or upskilling, give yourself more negotiation power to increase your income.
3. Invest: Rely on the expansionary nature of the markets to grow your wealth, taking measured risks that are commensurate with your desired returns.

A simple way to manage your finances is to allocate them for each goal and determine the time horizon you have to grow your monies for each goal, then work backwards to determine how much you need to save and invest.

As you work towards your retirement goals, regularly reassess and adjust your plan as your circumstances change, seeking professional advice when needed to optimise your strategy.

Read more: Goal-based investing and why it matters

Your step-by-step retirement checklist to get started

1. Set your monthly expenses in retirement

There are two categories of spending you should make a list for. The first category consists of essentials and necessities, such as food, housing, transportation, utilities, healthcare, and so on. 

The second category is your discretionary spending — think travel, hobbies, and other activities that you would want to pursue after retiring. What type of lifestyle do you want in retirement?

Once you have estimated your total expenses, you will have a realistic sense of how much you need to save up, as well as how much wiggle room you should leave for adjustments to any expenditures if necessary.

 Don’t forget to account for inflation in your calculations. Inflation eats away at our purchasing power.

2. Consider the source of income to fund your retirement investment plan

In general, income in your retirement years in Hong Kong may come from your MPF/ORSO withdrawals, your investment portfolio, government allowances, rental income if you own a property, private annuity plans, insurance plans and reverse mortgages.

Your investment portfolio should ideally comprise a variety of assets, which may include stocks, bonds, real estate, and alternative assets. It is important to diversify your portfolio to manage the risks, and to review the allocation and performance regularly should you need to rebalance it to keep up with market changes or any changes in your financial situation and goals.

If you own an investment property, note that you have to pay taxes on the rental income earned from leasing it out.

3. Protect against unexpected expenses 

Your next step is to be prepared for potential unforeseen circumstances, where possible.

If you are the sole breadwinner for your family, you can purchase insurance to provide them with financial security should you pass away, become permanently disabled, or become unable to work due to an illness. A life insurance plan, disability income insurance, and critical illness insurance can address those concerns respectively.

Healthcare costs in Hong Kong have been rising over the years and are expected to grow by 8.8% in 2023 according to WTW’s 2023 Global Medical Trends Survey.  Although Hong Kong’s public healthcare system is very affordable with high medical standards, waiting time at public hospitals can be very long, in certain cases one may consider using services at private hospitals which often comes with a hefty price tag. It is not legally required to purchase health insurance in Hong Kong, but you can consider purchasing voluntary health insurance (VHIS) which is also tax deductible.

4. Don't forget legacy planning 

Last but not least, legacy planning is key if you wish to bequeath your assets to your loved ones after your death. It involves thinking about how to preserve your wealth and how to pass it to your loved ones.

You will need to make important decisions such as who to appoint for the lasting power of attorney, how your overall assets will be distributed, and your preferences for medical care if you become terminally ill or incapacitated. 

Ensure that your will is updated with clear instructions, and that your documents will be accessible in case of emergency. We dive deeper into this topic here.

How Endowus can help you with your retirement plan

Planning for retirement can be complex, especially when considering factors like inflation, healthcare costs, and investment strategies. Seeking guidance from a professional financial advisor can provide reassurance and help you make informed decisions for your financial future.

A qualified advisor can assist in:

• Assessing your current financial situation
• Setting realistic retirement goals
• Developing a comprehensive investment strategy
• Evaluating insurance needs

Learn about your income building options with Endowus, get started here. You can also schedule a call with our SFC-licensed financial advisors to help you with your retirement plan today.

To learn more about retirement planning and how to get started, explore our curated section on retirement.

<divider><divider>

Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. Rates of exchange may cause the value of investments to go up or down. 

This article is not intended to be relied upon as a forecast or research or investment advice, and should not form the basis of any investment or other decisions. The information contained herein is not intended, and should not be construed, as any legal, tax, regulatory, accounting or financial advice. If you would like investment, accounting, tax or legal advice, you should consult with your own professional advisors regarding your individual circumstances and needs.

The information in this article may not be suitable for all investors. You are responsible for any action that you take or decision that you make in reliance on any content in this article, and you agree that Endowus HK Limited (“Endowus”) is not liable under any circumstances.

No invitation or solicitation

Neither the information, nor any opinion, contained in this article constitutes a recommendation, offer or solicitation  by Endowus or its affiliates to you to buy or sell any securities, collective investment schemes or other financial instruments or services, nor shall any such security, collective investment scheme, or other financial instruments or services be offered or sold to any person in any jurisdiction in which such offer, solicitation, purchase, or sale would be unlawful under the securities laws of such jurisdiction. 

This is not intended to be an invitation or offer made to the public to subscribe for any financial product or to enter into any transaction.

Accuracy of Information

Whilst Endowus has made reasonable efforts to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies or errors in any such information. Endowus does not warrant or represent that the information in this article is correct, accurate or reliable. 

Opinions

Any opinion or estimate above is made on a general basis and none of Endowus, nor any of its affiliates, representatives or agents have given any consideration to nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Opinions expressed herein are subject to change without notice.  

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this article are subject to market influences and contingent upon matters outside the control of Endowus and therefore may not be realised in the future. 

In presenting the information above, none of Endowus, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances.

This article has not been reviewed by the Securities and Futures Commission of Hong Kong.